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owner builders page
Make sure you reap the financial rewards of your new home or
renovation. Owning your own home has always been the great
Australian dream. So how do you go about financing a new home or extension
? Budgeting for a new home is a serious business and
there are many things you need to take into account. Firstly, you need to work
out your budget. Consider your combined family income, existing liabilities,
assets and savings. Examine your current lifestyle and work out how much
of your income you spend on things like eating out, shopping, holidays and
gifts. If you decide to take out a mortgage you may have to make
sacrifices. It is vitally important to assess yourself honestly
can you really stay in every single Saturday night or wear the same clothes for
three years straight? Are you truly prepared to give up wine and weekends away?
Make sure you stay realistic while you're in the exciting stage of
planning. Your 'borrowing power' is the amount a financial
institution is prepared to lend you. Many lenders provide online calculators
that estimate this figure for you. Simply provide information on your sources of
income and your liabilities, including current credit cards. You will still need
to be assessed by your lender, but can get a ball park figure for what you can
borrow. The next step is to get a lender to approve your loan
in principle. This means you have been pre-approved for a loan up to a certain
amount. Getting pre-approval can be more important for buyers
who are looking for existing property than those who are buying a new home. Some
developers have an association with a particular lender and are therefore able
to assess your financial situation onsite. However, by getting pre-approved you at least have an
idea of what your spending range is. You also have a benchmark which you can
compare with other assessments of your financial situation. To get your loan approved in principle, you will have
to provide your lender with a number of documents. These include: Once you have your pre-approval, you're ready to
start looking for your home - provided that you've saved for your starting
costs. Work out what it will cost If you intend building, the next step is to get an
idea of what you can do within your budget. You can: The design of the house will affect building costs.
For example, it will cost more to build a house with a complicated roof and
exterior wall design than a simpler house. Interior design involving higher
ceilings, or lots of walls, windows and doors will add to costs. The type of design detail will also make a difference
to how much you pay your architect or designer. However, a good designer should be able to work
within your budget to produce something that suits your needs, within reason.
Some design aspects will actually save you money in the long-term. Passive
energy design features like orientation of the house and large north-facing
windows will save you money in heating costs. Spending a little more on good
insulation will also save on heating costs. Whether you are building or buying, once you have a
good idea of what you can do within your budget, you need to start talking
seriously to a bank, mortgage broker or other lenders. It is becoming more common for people to borrow money
from organisations other than banks. If you have been turned down by the banks,
this may be an option, but if you are a risky proposition for the lender, you
are likely to pay higher interest rates and fees. They may lend a smaller
percentage of the property’s value than banks usually provide, so you may have
to top up the difference some other way. However, non-Bank lenders can be a good option for
people who want to pay off their mortgage more quickly. Some of these
organisations encourage fast repayment. They may provide budgeting packages and
consultants to keep an eye on you. And they may have schemes to help your debt
reduce, for example, having your salary direct-credited to your mortgage
account. Many banks will require you to have some sort of
mortgage repayment insurance. Mortgage protection insurance cuts the risk
that a sudden loss of income-earning ability will force you to give up your
house. When you buy a new home, you usually take on extra financial commitments
that eat up most of your income. You assume that your family's key
income-earners will stay in work. And if you are paying off a mortgage when you
lose your income-earning ability, your current house will probably be one of the
first things that disappears from your life. A loan option to be wary of is a scheme whereby a
middleman - for example, a real estate investor -
buys a property and then offers you credit to buy the property. These schemes
are known by a variety of names including wrap-around mortgages, rent-to-buy,
lease options, vendor finance, or installment sales contracts. The problem with these schemes is that you don’t own
the property until you finish paying, so you can’t sell and move somewhere else,
or refinance, and if the middleman goes broke you will lose all the money you’ve
invested Cash Flow Any DIY Owner Builder should know the
importance of cash flow - it is the lifeblood for your DIY Owner Builder
Project. If the cash flow slows it can throw the whole project off schedule. In
the worst case scenario, materials could not be delivered so work cannot start
resulting in the subcontractors being forced to begin projects elsewhere.
There is specialist PC software for cash flow
management enabling you to forecast spending against the reality. All
known invoices and forecasts should be filed complete with due dates for your
staged payment records. * The information supplied here is of a general
nature only. It does not purport to provide financial advice. You should not act
on the basis of information contained on this site without obtaining qualified
professional advice which can be tailored to your specific circumstances and
needs.
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